Exchange Rates in the wake of Cyprus fiasco

Tuesday 26th March 2013

Good afternoon to regular readers and new readers alike. If you have stumbled across my blog looking for the best exchange rates, and information on what moves the rate to see what may happen in the coming weeks and months, you’ve come to the right place. Today I'll look at what the current situation means if you need to buy Euros, and also look at the implication of EU events on those selling Euros back to Pounds.

Since my last post things have progressed a little in Cyprus, and now an agreement has been put in place, but the topic is still dominating headlines in both the national press and financial supplements. So what have I got for you today? I’m going to have a look at why the Euro remains weak despite the agreement, and look at the possible implications of the deal on exchange rates. I will also look at Sterling, what data is coming soon and which way exchange rates may move in the coming weeks.

If you need the best exchange rates, don’t forget I can source commercial levels significantly better than the banks, so send me a free enquiry today to find out more.

Right, let’s get cracking and today I’m covering the following points:

Deal in Cyprus agreed

Why is the Euro still weak?

Outlook for Sterling in coming weeks

Credit downgrade keeps pressure on Sterling.

Cyprus – deal agreed, but Euro remains weak.

Cyprus has agreed a deal with the European Union and the International Monetary Fund (IMF) to secure a 10bn euro bailout. It came just hours before a deadline set by the European Central Bank (ECB), and after a week of uncertainty about the future of Cyprus in the Eurozone. Despite the agreement, the Euro remains weak and GBP/EUR rates remain close to a 2 month high. Why is this? Well, worries about a broad euro zone slowdown, political uncertainty in Italy and prospects of the European Central Bank easing monetary policy in coming months is keeping EUR weak. Let’s dig a little deeper in to this financial mess…..

So what was agreed?

Cyprus has agreed to a significant restructuring of its banking sector, along with other measures such as tax rises and privatisations. The measures are designed to raise billions towards the bailout, but protect bank customers with deposits of 100,000 euros or less. For those with more than that, it’s not looking very good at all. You can read in depth what was agreed here on the BBC site.

This may also have a wide impact on the Eurozone, however. Some analysts have warned that the measure would set a dangerous precedent in the world of Eurozone bailouts.

In previous rescues, individual accounts have been protected and governments, private investors and banks have picked up the tab. Bank customers in other European countries may begin to fear that their savings will also be targeted should their economies run into trouble in the future.

It could, but for the moment this is unlikely. You have to remember that Cyprus is Europe’s 3rd smallest economy, and much of the savings there are held by Russians. In terms of the bailout amount vs. the countries GDP, their bailout was similar to Greece’s. I personally think that the ECB is loath to bailout out Russians.

What does this mean if you need to buy Euros?

It’s good news. The disaster in Cyprus has weakened the Euro, pushing rates up from 1.13 only a few weeks ago to around 1.18 today.

This may not last long, as there is no strength in the Pound. Indeed the rating agency Fitch has warned that it may downgrade the UK's credit rating in April, so we could see rates on the way down again once the EU problems are no longer centre stage.

If you need to buy Euros, get in ouch with me today to find out how you can lock in the current attractive levels even if you don’t need your currency for some time.

Many of my clients have been moving funds out of the Eurozone in fear that other countries may follow suit. I personally think this is unlikely, but then I don’t have large volumes of funds in the Eurozone. If I did, I would probably be keen to keep my deposits there under the €100k threshold.

If you want to move funds back to the UK, send me an enquiry now to see the rates I can achieve, they can be up to 4 or 5% better than the banks.

Crazy times

I’ll post more news on Thursday to keep you all updated how the events are affecting exchange rates. At the moment, banks remain closed, there is a freeze on transfers, and nobody knows what the future holds.

What's happening is remarkable, more so that journalists and politicians are calling the plunder of savings a "haircut". I've got another word for it, and it rhymes with 'slobbery'. These really are crazy times we’re living in!